Catryna Bilyk (Tasmania, Australian Labor Party) Share this | Hansard source

I must confess that I am a little bit confused about where the Turnbull government stands on multinational tax avoidance. Just last sitting week parliament passed a government bill that wound back one of Labor's key tax transparency measures. The bill I refer to is the Tax and Superannuation Laws Amendment (Better Targeting the Income Tax Transparency Laws) Bill. It follows the tradition of those opposite of inserting a misnomer into the title of the bill to hide their real intent, because the bill passed last month does not better-target Labor's laws; it guts them. This was just one in a series of wind-backs of Labor's anti-avoidance reforms, through which the government has so far handed back $1.1 billion to multinational companies. So it is quite puzzling to see the government put forward legislation to strengthen the provisions, having already weakened them in several other pieces of legislation.

Having said that, the provisions in this bill are a positive, albeit small, step forward, and we support them. But even with the passage of this bill the government's measures are a far cry from the serious action on multinational tax avoidance that Labor has announced with our $7.2 billion package. I will talk more about that later, but let me first outline why the issue of multinational tax avoidance is so important.

In June last year I met with representatives of Micah Challenge, a Christian anti-poverty organisation. During my time in the Senate I have had many meetings with Micah Challenge. They do an excellent job advocating for the world's poor. At the time of my meeting last year, Micah Challenge had joined with the Tax Justice Network, a global movement campaigning for measures to tackle tax avoidance by multinational companies. I have spoken in this place previously about my meeting with Micah Challenge and the issue of tax justice, but I will return to some of the points I made in that speech, because they are relevant to the bill we are debating today.

It would interest many people, and possibly even shock them, to learn that multinational companies manage to use their tax arrangements to unfairly avoid paying around $160 billion in tax in developing countries. This is the estimate from UK charity Christian Aid. By comparison, the world's annual aid contribution is only $135 billion a year. In other words, multinational tax avoidance in developing countries is greater than the combined foreign aid budgets of all contributing nations.

So, as you can see, seriously combating this problem would go a long way towards eliminating extreme poverty. When it comes to poverty alleviation, tax revenue can have some advantages over development assistance, provided the government receiving it and spending it is doing so in a proper and transparent way. For example, tax revenue is a more stable and secure source of income, which can help countries plan for the long-term future. Also, the governments of recipient countries are accountable to their own citizens for the expenditure of the money, rather than to a foreign government.

Having said that, tax revenue should be a supplement to development assistance and not a substitute for it. Development assistance should play an important role in alleviating extreme poverty, for as long as it persists. I will continue to campaign fervently for this government to reverse its cruel and heartless $11.3 billion in cuts to its aid budget. I will also continue campaigning for tax justice.

To highlight the ridiculousness of multinational tax avoidance, I mentioned in my speech last year the story of the sugar cane cutter working in Zambia for USD$14 a day, who paid more absolute tax than the multinational company Zambia Sugar, despite the latter making $18 million in profit. A similar example is that of the richest man in the world, Warren Buffet, pointing out that he pays a lower rate of tax than his secretary. All this would be quite funny if it was not so tragic that multinational companies making profits in the millions and billions can end up paying barely any tax, while the tax burden falls to middle income earners.

You may be asking yourself, why I am talking about poverty in developing countries when we are debating a bill that relates to Australia. Well, the answer is quite simple. Tax justice is as much an issue in developed countries like Australia as it is in developing countries. All countries, no matter how wealthy, have people who are experiencing poverty and disadvantage. This poverty and disadvantage is exacerbated when big companies do not pay their fair share of tax, because in order to fund essential services the tax burden falls to low- and middle-income earners. There is clearly something awry in Australia when the three richest people have more wealth than the poorest one million.

But the issue of multinational tax avoidance is relevant to the issue of global extreme poverty regardless of which jurisdiction you are talking about. This is a global problem and, when action is taken by developed countries, multinationals find it more difficult to avoid their tax obligations in countries where poverty is rife. The more countries around the world there are that crack down on tax avoidance in their own jurisdictions, the fewer places multinational companies will have to shift and hide their profits.

Let me take some time to explain how multinational tax avoidance works, because it is very relevant to this bill and, of course, this debate. Multinational businesses use sophisticated accounting techniques and a complex web of companies to shift their profits from higher taxing jurisdictions to lower taxing jurisdictions. This is increasingly becoming a problem when advances in information and communications technology are making business increasingly globalised. Also, with an increasing amount of business taking the form of selling intangible assets like information or online services, it is becoming easier for businesses to choose where they conduct their business from and harder for governments to make rules defining where business is conducted.

It is relatively easy to track how much tax an individual or a company should pay when all their activity is confined within our borders, but it becomes a whole lot trickier when an intricate web of companies forming a consolidated entity operates across national borders. If a company can effectively shift most or all of its profits to a tax haven, it can avoid paying any tax or, at least, paying a reasonable share of tax that is commensurate with community standards. One of the popular ways for multinationals to artificially shift profits from one jurisdiction to another is through the payment of licence fees or royalties from subsidiaries to a head company. Another popular arrangement is where the head company grants the subsidiary a loan, and the loan repayments help the subsidiary to write off some of their profits. If you look objectively at these arrangements—the amount of the licence fees and loans, and where the head company is situated—the structure makes no commercial sense, except from the point of view of minimising the company's tax bill. It is thoroughly ridiculous, for example, that a small territory like the Cayman Islands, a tax haven with a population of around 60,000 people, is home to 100,000 registered companies. How many of these 100,000 companies actually do business in the Caymans, other than on paper?

We have recently had a report from a Senate inquiry which reveals just how aggressive some multinational firms have become with this activity. In its submission to the tax inquiry, the tax office reported that more than half of Australia's cross-border trade—over $300 billion a year—is from companies transferring money between their own subsidiaries. The inquiry heard evidence that one big multinational firm may have paid as little as two per cent tax on billions of dollars in revenue. By contrast, an average Australian wage earner pays 21c in the dollar. If an average wage earner were able to pay the same rate of tax as that multinational company, they would pay $15,000 less a year. This is an insidious problem that is only going to get worse as finance becomes more mobile. It is a problem that needs action not just from individual countries but from the global community.

The Tax Justice Network proposed three measures to help combat the problem of multinational tax avoidance. They include the automatic exchange of information between tax authorities in different countries; a public register that lists the owners and beneficiaries of companies, trusts and foundations; and requiring multinational companies to break down their financial reporting on a country-by-country basis. We on this side of the chamber have gone a long way towards implementing what the Tax Justice Network has been campaigning for. We are very proud of our record when it comes to increasing transparency and clamping down on tax avoidance by large multinational companies.

I will just briefly summarise the measures to tackle tax avoidance that Labor has implemented during our time in government. We passed legislation that plugged loopholes in Australia's transfer-pricing rules and anti-avoidance provisions. We amended the Taxation Administration Act to require the Australian Taxation Office to publish information about the income, taxable income and tax paid by companies earning over $100 million. We also passed legislation which cracked down on companies overvaluing assets in international transactions. I should mention at this point that the last three measures I referred to were opposed by the coalition and, as I mentioned earlier, one of them was recently reversed by a government bill.